Summary

On 8 January 2015 the Full Court of the Federal Court handed down its decision in United Firefighters' Union of Australia v Country Fire Authority.1 This was a victory for the Union in enforcing an enterprise agreement negotiated with the Country Fire Authority.

Under established principles, Federal industrial agreements or awards which purport to regulate the recruitment and redundancy of State public sector employees are legally invalid. This is because there is an implied limitation in the Constitution on the power of the Federal government to make laws which discriminate between States or effectively curtail a State's capacity to function as a government. This limitation is known as the 'Melbourne Corporation' principle.

Therefore, in holding the Victorian Country Fire Authority to its commitments under an enterprise agreement, including to maintain certain staffing levels and limiting retrenchments in relation to career firefighters, the Federal Court has carved out a broad exception of how the law applies to "voluntary" enterprise agreements.

In this eBulletin, we look at the decision and the implications for state agencies entering into enterprise agreements for public sector employees.

Background

The CFA is a Victorian government agency responsible for preventing and suppressing fires in country Victoria. Its enterprise agreement with the United Firefighters' Union was entered into in 2010, following negotiations between the CFA and the Union. The enterprise agreement was approved as a Federal enterprise agreement by the Fair Work Commission.

The enterprise agreement contained provisions which relevantly imposed a requirement that the CFA employ 342 career firefighters over a six year period and undertake a minimum of three recruitment courses in each year, training at least 30 recruits in each. The CFA accepted that it did not meet these targets.

In mid-2012 the Union commenced proceedings in the Federal Court seeking orders compelling the CFA to remedy alleged contraventions of the agreement by conducting further recruitment courses and training 100 recruit firefighters in 2013. In its defence, the CFA raised the following arguments:

  • the relevant provisions of the enterprise agreement were invalid on the basis that they were contrary to the implied limitation on Federal power arising under Australian constitutional law known as the 'Melbourne Corporation principle';
  • the CFA is not a 'trading corporation' within the meaning of the Constitution, as relied upon by the Fair Work Commission when it approved the agreement; and
  • if the CFA is not a 'trading corporation', the Fair Work Commission could not rely on the referral of Victorian State power to the Commonwealth because the disputed provisions of the enterprise agreement related to the number, identity, appointment or redundancy of public sector employees, which were excluded by the Fair Work (Commonwealth Powers) Act 2009 (Vic).2

The CFA also argued that other provisions of the enterprise agreement were invalid, including those relating to the dispute resolution process and consultation regime. These arguments were strongly criticised by the Full Court as "in effect, a tit-for-tat manoeuvre having no particular strategic end beyond seeking to reduce the role of the [Union] under the Agreement."

At first instance, Justice Murphy applied the Melbourne Corporation principle, as it was modified by the High Court in the context of industrial relations in Re Australian Education Union; Ex parte Victoria (Re AEU).3 In broad terms, the Melbourne Corporation principle states that the Commonwealth's legislative power may not be used to pass laws of general application that operate to destroy or curtail a State's capacity to function as a government.

In Re AEU the High Court decided that provisions of a Federal industrial award contravened the Melbourne Corporation principle, because the award restricted the ability of the state government to determine the number and identity of state government employees by imposing a redundancy regime for public school teachers and public sector health workers. Such a Federal restriction on the ability of the State government to recruit or make redundant its employees was held to be contrary to the limitation on Federal powers implied by the Constitution.

Applying Re AEU, Justice Murphy decided that the relevant provisions of the enterprise agreement which required the CFA to recruit a specified number of career firefighters were invalid, even though they were voluntarily agreed to by the CFA.4

The decision

On appeal, the Full Court of the Federal Court held that Re AEU could not be applied in the context of an enterprise agreement which had been freely bargained between the parties.

Distinguishing a voluntary enterprise agreement from a federal award imposed by the Fair Work Commission (or its predecessors, as was the case in Re AEU), the Full Court said that "holding a State or its agency to its 'determination' for the limited period of an enterprise agreement which had been voluntarily made by the parties has a very different quality to the imposition by the Commonwealth of an arbitrated outcome on a State or its agencies which have opposed that outcome."

In the Full Court's view, the relevant provisions of the Fair Work Act 2009 (Cth) which provide for the making of voluntary enterprise agreements and their approval by the Fair Work Commission validly apply to States. In forming this view, the Full Court did not attach any significance to the fact that an enterprise agreement only has statutory force if and when it is approved by the Fair Work Commission.

On this basis, the Full Court allowed the Union's appeal and upheld the validity of the relevant provisions.

The Full Court also agreed with the finding at first instance that the CFA was properly characterised as a 'trading corporation' under the Constitution. This was because the CFA's $13 million in annual revenue attributable to trading activities was not insubstantial, even though it constituted only a small percentage of its overall annual $467 million revenue (or an additional estimated $840 million revenue, if the economic benefit of volunteer work is taken into account).

Because the Court found that CFA was properly characterised as a 'trading corporation', it was not necessary for it to determine whether the enterprise agreement was beyond the referral power.

Bottom line for state agencies

The decision is one of few to consider the constitutional validity of industrial agreements entered into by public sector, State government agencies. The Full Court's decision effectively holds the CFA to its bargain and represents a significant win for the United Firefighters' Union.

The Court's reasoning that a voluntary enterprise agreement cannot contravene the Melbourne Corporation principle represents a significant development to established principles in this area of industrial relations law that, subject to any appeal, will likely have broad ramifications for State agencies.

Whilst indications are that the CFA does not intend to appeal the decision,5 this novel development to an established principle of constitutional law may yet need to be tested in the High Court.

In the meantime, a state agency voluntarily entering into a Federal enterprise agreement should be aware that its effective consent to that agreement being approved by the Fair Work Commission may preclude any arguments against its constitutional validity.